BCE moves to take full control of Bell Aliant with $3.95-billion privatization

07/23/2014 07:27 EDT
|
Updated
09/22/2014 05:59 EDT

CP

BCE Inc., Canada's biggest telecom, is moving to consolidate its position in Atlantic Canada by offering to take full ownership of Bell Aliant through a $3.95-billion deal that analysts generally expect will be successful.

The Montreal-based company also announced the purchase of two New Brunswick call centres, plans to roll out its high-speed wireless service to about 100 more communities in the region and $2.1 billion in infrastructure spending over the next five years.

"Bell Aliant is a core part of BCE's national communications operations alongside Bell Canada," BCE president and CEO George Cope said an announcement Wednesday.

"In line with our investment-focused strategic imperatives, BCE looks forward to continuing network and service innovation to benefit consumers and business customers across Bell Aliant's territory.

BCE Inc. (TSX:BCE), which already owns 44 per cent of Bell Aliant, said the company would maintain its separate identity with customers and remain a regional affiliate of the Montreal-based parent company. However, things like billing and product development will be integrated to reduce expenses if the deal is completed as expected.

Desjardins Securities analyst Mayer Yaghi said BCE is always under pressure to grow its cash flow in order to meet investor desire for higher dividends — something that will be more difficult if its internal growth slows.

"To be able to comfortably continue to grow the dividend at five per cent, you try to get as much as you can," Yaghi said.

He added there's the possibility that another national wireless carrier could emerge and erode the earning power of BCE, Rogers (TSX:RCI.B) and Telus (TSX:T), which collectively account for more than 90 per cent of the market.

"BCE's stock could come under pressure and that would make the transaction more difficult if they were to leave it to next year," Yaghi said.

Thirdly, Yaghi said, the deal will help BCE compete against Rogers, which has been pricing its services aggressively in New Brunswick where Aliant has been building out its fibre-optic television service.

"It's more difficult for the competition when you have one entity that they're competing against, rather than two in different places," Yaghi said.

Bell Aliant will continue to serve customers in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island as well as its regional telecom operations in parts of Ontario and Quebec — primarily outside the major cities served by Bell Canada.

Cope told analysts Aliant is nearing completion of its multi-year upgrade of its wireline network — which delivers phone, Internet and television services — but will need further funding.

BCE — which also has a media business that includes CTV, radio stations, cable channels and outdoor advertising — said the acquisition of Aliant would eliminate the cost of running two publicly traded companies.

It is targeting $100 million in annualized savings, but said it would continue Aliant's network improvements. No job cuts were announced Wednesday, although company executives told analysts that they'd look to reduce overlap in areas such as billing systems and product development.

Bell Aliant headquarters will remain in Halifax.

"I think what this really does is take that local expertise and commitment that we've always had and put the full backing behind us of BCE to make us very, very strong as we move forward to help us keep being the 'preferred guy' in each of our local markets," Bell Aliant chief executive Karen Sheriff said Wednesday on a conference call to discuss the move.

In addition to the Aliant deal, BCE announced Wednesday the acquisition of two call centres in New Brunswick, one in Moncton and the other in Saint John, that will serve Bell Canada customers and add an additional 700 jobs to Bell Canada.

BCE also said it plans a capital investment of $2.1 billion across Atlantic Canada in the next five years to continue the rollout of broadband wireline and wireless for consumers and business users.

Bell Canada's high-speed wireless network will be expanded to more than 100 additional communities in Atlantic Canada by the end of 2015.

Under the offer, Bell Aliant shareholders may choose between $31 in cash, 0.6371 of a BCE common share, or a combination of cash and stock. BCE said the total amount paid will be 25 per cent in cash and 75 per cent in shares, or $7.75 cash and 0.4778 of a BCE common share (worth about $23.80 as at the close Wednesday when BCE was $49.82).

A condition of the offer is that BCE acquire at least 50 per cent of the 127.5 million Aliant shares that it doesn't already own, enough to give it an outright majority of shareholder votes. If BCE acquires 90 per cent or more of all Aliant shares, it can force the others to accept its offer and delist the stock from the public market.

Aliant's shares jumped after markets opened and closed at $31.53, up $3.34 or nearly 12 per cent. Based on the closing numbers for both stocks, BCE's offer was worth about $31.55 assuming 75 per cent of the price was paid in shares.